How is capital gain calculated?
The amount of your capital gain is the difference between your sales price and your tax basis in the stock. With your NQSO exercise, your basis in NQSO stock equals your exercise price plus the amount of income you reported for the spread. Thus your tax basis is usually equal to the fair market value of the shares on the exercise date.
Example: You exercise an option to purchase 100 shares of company stock at an exercise price of $10 a share (total exercise price of $1,000) on a date when your company's shares are trading at $15 a share ($1,500 total market value at exercise), with the $500 spread included on your W-2. You later sell these 100 shares for $20 each (total sales price of $2,000). You have a capital gain of $500 ($2,000 - $1,500) on the 100 shares. It would be long-term capital gain if you held the shares more than one year, starting on the day after exercise.
For the capital gains tax rates, see a related FAQ.
For restricted stock and restricted stock units, your tax basis is the market price when the shares vest and are delivered to you, unless you make a Section 83(b) election (unavailable for RSUs) to be taxed on the value of the shares at grant.
You report capital gains (and losses) on IRS Form 8949 and Schedule D of your Form 1040 tax return. FAQs with annotated diagrams in the Tax Center on this website show you how to report sales of company stock. To help you calculate your tax basis, the information on the Form 1099-B you receive from your broker or transfer agent as been expanded, as explained in another FAQ.